Day 9: Open Your Online Savings Accounts

by Jason Unger

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I know I’ve written about it before, but the day I opened my first online savings account literally changed the way I manage money.

It was back in the good old high-interest days of the mid-2000s, when you could find an account paying 5% or 6% in interest. I remember putting money into the account, and checking it a couple of times a day … and seeing more money than I had put in. (Click here for a new online savings account option).

While interest rates for savers aren’t as high today, seeing your money make money on its own has a profound effect on your savings habits. 

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The Automatic Finances system is built upon using today’s technology to make your life easier and your money work harder for you.

It isn’t possible without a modern banking invention: the online savings account.

What’s an Online Savings Account?

An online savings account is, generally, no different than an account that you have with a brick-and-mortar bank. It’s a totally secure bank account where you can make deposits, withdrawals and transfers.

You may have an online savings account from your local bank, or from an Internet-only bank, like ING Direct. Sometimes they’re also called a high-yield savings account.

So what’s the difference between an online savings account and your brick-and-mortar account? An online savings account has fewer fees and minimums, and makes your money work harder for you.

The best online savings accounts have:

  • no monthly fees
  • no minimum balances
  • an interest rate higher than brick-and-mortar banks

Generally, online savings accounts offer all of these benefits because their costs are much cheaper than traditional banks. With little overhead for online-only banks, they can offer better rates and minimize the fees and other costs.

How much better are online savings accounts? Let’s take a look.

A Comparison: Online to Brick-and-Mortar

If you’ve been saving money with your local bank, you’ve probably been ripped off.

Let’s take a look at Bank of America’s Regular Savings Account:

  • 0.20% APY (annual percentage yield)
  • $3 monthly maintenance fee (without a balance of $300 or automated $25/monthly savings)
  • $3 fee for more than 3 withdrawals per month (if balance is less than $2,500)
  • $25 to open

Compare that to ING Direct’s Orange Savings Account:

  • No monthly fees
  • No minimum balance
  • No fees for withdrawals or transfers

Without a doubt, ING Direct offers a much better product that will make you more money than old-fashioned savings accounts.

But Is It Safe?

If you have an online savings account, you should feel just as comfortable depositing and withdrawing money as you would with your brick-and-mortar.

Many brick-and-mortars have even begun offering their own high-yield, online savings accounts. If you feel more comfortable opening an account with a bank you know (like HSBC), your favorite bank may offer their own version.

Online banks like ING are FDIC-insured just like brick-and-mortars, which means that the Federal Government will ensure your deposits up to the same amount.

Depending on where the Federal Reserve sets certain key interest rates, the return you get on your online savings account will change. It’s totally normal for APYs to go up and down, normally in relation to the Fed rates.

Open Your Short-Term Savings Accounts

Now that you have a better idea of why you should save online, it’s time to open up your online savings accounts.

There are a number of Internet banks with online savings accounts as well as brick-and-mortars with competing high-yield accounts.

Some of the high-yield online savings accounts come from:

While each one of these has positives and negative features, we recommend using ING Direct.

Why ING Direct?

ING Direct, part of the international financial institution ING Group, is an online-only bank founded in 2000.

Their most popular account is the Orange Savings Account, one of the most flexible and low-cost high-yield accounts available. The Orange Savings Account was one of the first high-yield online accounts, which many competitors have attempted to imitate.

ING Direct offers a number of benefits over other accounts, including:

  • No fees or minimums
  • Ability to open sub-accounts
  • Easy linking to external bank accounts

So let’s get started opening your Orange Savings Account. If you choose a different online savings account, the sign-up process will be different, but should be generally similar.

How to Open Your Orange Savings Account

Before you can open your account, you need to gather a few items.

ING breaks it down:

  1. Be sure to have your checkbook handy – you’ll be making your initial deposit electronically from your existing checking account. This will create an electronic link between both accounts so you can easily transfer funds in the future.
  2. To verify ownership of your checking account, we’ll ask you to verify 1 or 2 small amounts, each less than $1.00 that we’ll deposit into your checking account (this must be done within 60 days).
  3. Your initial deposit and any recurring deposits that you set up will be withdrawn from your linked checking account even if you haven’t confirmed the 1 or 2 small deposits.
  4. If this is a joint account and your joint account holder is on your external checking account, that person is also required to confirm the 1 or 2 small deposits.
  5. Until the link verification is complete, you (and your joint account holder if you have one) will not be able to make withdrawals from your ING DIRECT Account.
  6. Withdrawing money, regardless of when it was deposited, cannot be done for the first 10 business days after the account is opened. All future deposits are subject to a 5 business day hold before they can be withdrawn.

Ready? Let’s go!

At This Point…

Rather than double up on the process of opening your account, follow ING’s directions. Link your central checking account to your new savings account. When you’re done setting up your account, come back here and we’ll show you how to get the most of it!

Click here to get started.

Setting Up Your Subaccounts

Now that you’ve set up your Orange Savings Account, it’s time to make it even more useful.

One of the great things about ING is its ability to set up “subaccounts” within your Orange Savings Account. Under one umbrella, you’re able to have multiple accounts for specific goals.

So when you’re saving for more than one goal, or housing your emergency and once-in-a-while funds, you can keep the specific money separate to know exactly where you are.

In order to open a subaccount for a specific goal:

  1. Log in to your ING Direct account
  2. Click on the “Open an Account” link
  3. Click on “Orange Savings Account” and then “Open Now”
  4. Select either Single, Joint or Living Trust
  5. Give your account a nickname relating to your goal: Emergency, Once-in-a-While, Vacation, etc.
  6. Fund it with some money – even if it’s only $1 to begin – from another account
  7. Agree to the terms, and click “Open Account”
  8. Start saving!

That’s it! You’ll now see the new account on your main page, with all of your other accounts.

Do this for each account you need, making sure that you give it the appropriate nickname. You can also re-name the first account you opened to specify what that money is to be used for.

TIP: One of the best reasons to open subaccounts for specific savings goals is so that you can physically – not just mentally – separate those funds from your other savings goals. The last thing you want to do is mix your emergency fund with your vacation fund.

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